Hard to swallow

The FTC's move to block the Whole Foods-Wild Oats merger doesn't make sense for consumers.

HOW DOES A retailer that controls about 10% of a market and is competing with much larger players become a monopolistic threat? That's a question the Federal Trade Commission needs to answer before it blocks the proposed merger of Whole Foods Market and the struggling Wild Oats Markets natural foods chain.

The FTC warns that the deal, which aims to create a company with sales of $6.8 billion a year, would "tend to create a monopoly in the operation of premium natural and organic supermarkets." That point may be arguable in the $28.3-billion natural-products specialty supermarket niche. But it's clearly wrong in the overall market for natural and organic products, which topped $56 billion last year, with an annual growth rate of nearly 10%.

This market is not only growing but changing rapidly. Wal-Mart got into the organic-foods game last year and is already a major player, as is Costco. Every supermarket chain worth its gourmet sea salt now does a brisk business in natural and organic products; supermarkets and big-box stores account for an $18-billion chunk of the sector. In this highly competitive market, Whole Foods, with $5.6 billion in annual sales, is highly successful but hardly monopolistic.

In its effort to define the natural-foods retail market as narrowly as possible (and thus make Whole Foods seem more dominant than it is), the FTC's injunction makes some dubious judgment calls -- for example, noting that these stores provide an "emphasis on service and consumer education" that other supermarket chains don't. By this logic, any attempt to differentiate your business or offer a value-add that your competitors don't means you're creating a brand-new market -- in which you can't help but be the monopoly player. (Interestingly, the FTC has in the past categorized both Whole Foods and Wild Oats among general-purpose supermarkets -- a field in which the two companies, with their combined 305 stores nationwide, are clearly pikers.)

But there's a more serious issue here. All antitrust and trade law is supposed to benefit consumers. How will natural-foods shoppers be better off if the FTC manages to stop this merger and Wild Oats simply goes out of business?